Art of Tea - Tea of the Month

Why increased global trading is good for Africa

May 8, 2015

Trade is the best cure for prejudice. It is an almost general rule that, wherever there is good citizenship, there is trade, and that, wherever there is trade, there is good citizenship.” –  French philosopher Montesquieu.

Philosophically, it could be argued that nations are endowed with different sets of natural resources for the sole purpose of facilitating trade and exchange – if every nation had the exact same resource profile, there’d be no need for any form of exchange.

Beyond philosophy, however, the case for boosting global trading has never been louder with the recent growth slowdown in the global economy. A series of analyses from the International Monetary Fund (IMF), which has a long history of advocating for more criss-crossing of goods and services, suggest that trading does more than just provide money for nations, it triggers a virtuous cycle that spikes growth and innovation, while reducing poverty. “If you care about growth and innovation; if you care about jobs and the real incomes of the middle-class; if you care about poverty reduction and greater economic fairness; if you do care about all these things, you need to be serious about fostering global trade,” advocates Christine Largarde, the IMF’s Managing Director.

Africa has witnessed impressive economic growth in the last decade—fuelled by increased foreign investment inflow and better commodities trading—but a slowdown in the transfer of goods poses a number of setbacks. Africa is expected to suffer a shrunken portfolio of investment inflows should the slowdown persist.

However, should global trading improve, here are the gains Africa’s stands to attract:

More jobs: A strong correlation exists between trading and job creation. The IMF reports that exports of goods and services directly and indirectly supported an estimated 11.7 million U.S. jobs in 2014.

Ironically, Africa continues to suffer from massive unemployment. Its two biggest economies—Nigeria and South Africa—both have more than 20 percent of their population unable to secure a job. Interestingly both countries, despite attracting significant international investments, noticeably have marginal trade relations with neighbours. With the U.S. already providing more than 10 million jobs from trade avenues, both economies can take a cue from the global economic leader.

Economies of Scale: Countries like Nigeria are known for oil production, while South Africa is known for diamond and platinum mining, as well as telecom services and finance. East Africa provides a suitable tourism destination in Kenya and Ethiopia. These could all form the basis of specialisation for most of these regions.

Encouraging structural reforms: The IMF believes that trade reforms, which result from increased trading, can increase external competition in the products and services markets. This, it believes, encourages key infrastructure investments, and strengthens institutions by encouraging better governance and an improved business environment. This can be seen in China’s renewed investments strides across Africa. The country, which has sunk a minimum of $200 billion into Africa’s infrastructure landscape, has improved road access, improved aviation and supported governments’ effort in rebuilding the emerging African economy.

Source: Ventures Africa

(0 votes) 0/5
Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp
Share on email